Shareholder Activism, “Voluntary” Restructuring, and Internal Labor Markets

Gerald T. Garvey and Peter Swan

Journal of Economics & Management Strategy, 1995, vol. 4, issue 4, 591-621

Abstract: We model an internal labor market in which employee behavior and compensation are affected by the firm's financial position and the threat of hostile takeover or other exercise of shareholder “voice.” We show how good past performance can result in excessively generous promotion and pay decisions. While the threat of shareholder activism will remove this “slack,” activists optimally face a positive cost barrier, which in turn varies across firms. The cost barrier is higher when cooperation or “helping” between employees is more important, and is lower when employees receive efficiency wages due to an inability to “pay” for their jobs. Since the importance of helping is associated with pay compression and “flat” pay ladders, such firms should also exhibit a greater degree of management entrenchment.

Date: 1995
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/j.1430-9134.1995.00591.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:4:y:1995:i:4:p:591-621

Ordering information: This journal article can be ordered from
http://www.blackwell ... ref=1058-6407&site=1

Access Statistics for this article

More articles in Journal of Economics & Management Strategy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().